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Children’s higher education expenses are one of the biggest expenses for any parent today but it is also one of the biggest gifts that you could give your child.
An investment in knowledge pays the best interest. – Benjamin Franklin
As the quote says, investing for your child’s education reaps the best interest because it helps them have a secure future.
Table of Contents
- Why Planning for your child’s education is so important?
- The major factor is inflation
- Negative Impact of not planning for your child’s education
- Mistakes to avoid
- Things to do
- Conclusion
Why Planning for your child’s education is so important?
Planning for your child’s education can also be compared to that of planting a tree. You have to daily water your plants, but only in the later stages, you will reap its benefits. In the same way, planning for your child’s education does not immediately show its benefits but in the later stages, i.e after your child completes his/her education.
Many parents want to plan for their child’s education but don’t know-how.
You don’t know what their aim will be when they reach their graduation. It could be anything. Starting from pursuing a degree at IIT, IIM or Medical, Engineering, Architecture, MBA, Finance, etc. There are a lot of courses and you don’t know what more courses could be coming up and what your child’s interest will be in the future. This is totally fine. But you can always plan for it.
How?
You can take a list of courses you think will be in demand in the future and check out the fee structure. Do consider the fees today but don’t forget about the inflation.
The major factor is Inflation
So children’s graduation and post-graduation fees have been increasing at a very fast pace. A small example is the fees at IIT, it was anywhere in the range between Rs. 55,000 to Rs. 80,000 in the year 2015. Now? It is around Rs.5 lakhs to Rs.10 lakhs now in 2020.
Can you see the “huge difference” or the drastic change in just 5 years?
Below is a chart of how the fees for different courses are rising.
Education inflation is one of the highest inflation in our country. It’s not easy to fund your child’s education if you haven’t saved enough. Especially if you start planning late. Whatever course it may be, the education expenses are on the expensive side. This is why planning for children’s education has become so important.
Many parents keep cribbing that the fee is already high and imagine the condition after 15 or 16 years. The rise is going to be too much.
How can you afford to pay the fees for your children, when they reach their graduation or post-graduation?
Are you going to compromise on their education?
On their dreams and goals?
Or the best institution?
Studying abroad?
All of us have different dreams, and all of us want our kids to achieve the best in life. So never compromise on this dream of theirs.
The question is if you have time to plan for it, why not plan for it now? Right immediately. This will make things easier for you.
What if you don’t plan for it? Let’s see what happens when you don’t plan.
Negative Impact of not planning for your child’s education
- Pressure on the yearly budget
- Constant worry
- Unable to provide quality education
- Liquidate assets
If you don’t start early it becomes difficult to set aside money every month, towards your child’s education goal. Hence there is pressure on the yearly budget as the expenses increase.
If you don’t plan and start investing early, you will have constant worry and stress whether you will be able to fund your child’s education or not. Hence plan early.
If you don’t plan early there are chances you may not be able to provide quality or desired education to your child.
Many parents don’t prepare for their child’s education in advance, and so there are parents who even go to the level of liquidating their assets in a last-minute rush.
Now let’s see what are the common mistakes done by parents that have to be avoided.
Mistakes to avoid
- No proper planning in advance
- Compromising on education
- Not considering inflation
- Not investing in the right products
- Compromising retirement for education
Many parents do not plan in advance for their child’s education. They just think about it, just 1 year or 2 years before the graduation starts. During every birthday of your child, make it a habit to assess and review the money accumulated for your kid’s education. Accumulating enough money year after year for kid’s education is a good reason to celebrate their birthday. It doubles your joy.
This is a very common mistake made by many parents, compromising education goal for marriage goal. Especially Indian parents have this mentality of focusing too much on marriage. They don’t want to spend too much on education as they have to save for their child’s marriage.
A point to be noted is the education given to your child will help your child get a secure future. It also makes your child independent. So this should never be compared/compromised to a marriage goal.
Many parents save for their child’s education, considering the fees today.
Will it still be the same after 15 or 16 years?
Definitely, it’s a NO. There is definitely going to be inflation, like how it was in the past. Your parent wouldn’t have paid for the degree, as much as what you paid, when you had to study the same course. So as inflation was there in the past, there is inflation even now. So do not forget about inflation while saving for your child’s education.
For eg: Studying at IIM costs Rs.23 lakhs now, in future it can become Rs.73 lakhs after 16 years. So it is always better to consider inflation.
Note: Even when considering inflation, do not take a low inflation rate.
Once the parents are convinced to invest in their child’s education, they invest in the wrong products. Never invest in assured but low return investment products/insurance policies and it’s better to avoid readymade child policies. Many are convinced about the assured returns factor but it does no good as the returns are not high. Hence you can try investing in a SIP.
Whatever the need may be, do not take money from the retirement corpus, or money kept for your other goals, for the purpose of your child’s education.
What else can you do if you don’t have sufficient funds for your child’s education?
You can opt for an education loan.
Education loan comes as the last resort. If you have a gap between the amount saved for the education and the actual cost of education during your child’s graduation, then do not worry about the difference, it can be compensated with the help of an education loan.
Now let’s see what are the things to do while planning for your child’s education.
Also read, Child Plans: Is that REALLY worth for your kids?
Things to do while planning for your child’s education
- Have adequate life insurance
- Plan for inflation
- Plan your investments smartly
- Start little and step up
- Take professional help if required
What if you have an untimely death or an accident where you will not be able to fund your child’s education? So it’s always required to cover yourself with an insurance cover (health/life).
Always plan for a higher level of inflation. It is best to keep it at 8% to 10%. Don’t assume less inflation.
Plan investments in such a way that you get the optimum results. Don’t opt for child plans but rather investments that offer higher returns.
To plan your investments smartly, here is a link to an easy to use children’s education calculator. This children’s education calculator can help you find the dream cost of education.
Here is an example of how children’s education calculator works.
Example: Mr. Jeevan wants his daughter Rita to study at IIT. So he starts preparing and plans to save for his kid by entering these details in the children’s education calculator. Just like the one below:
After typing the required details. You will know what will be the future cost of education and you will also find how much to save per month.
Here he finds that he needs to save Rs. 6,618 per month. Likewise, you will also find the amount required to save monthly to reach your child’s education goal.
It may seem to be a small amount now. But later this amount is going to be a huge sum, that is if you don’t start saving early, later it may seem to be a bigger amount. There will be a vast difference later on. Hence it’s better to start early. So the amount you have to invest every month will be smaller. It becomes easier for you to invest.
If the amount to save per month is huge for you, start with an amount you can save monthly, but remember to step up when you get your salary raise. With every income raise, increase your investment amount.
If you need guidance you can always seek the help of a professional.
Now, don’t you think that planning for your child’s education early is important and that it helps a lot?
Conclusion
This is all about planning for your child’s education. Start planning as soon as possible and increase your investment amounts as and when you have a raise in income. Do not forget about inflation, when you plan. With the help of the children’s education calculator, you will know how much to save monthly. This can help you give the desired education for your child at the best institution. An education loan can be used only as a last resort.
An average parent may not plan for their child’s education but a responsible parent would definitely plan for their child’s education, at the earliest possible.
Which category do you fall into? An average or a responsible parent?
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